A Study On Appropriate Amount Of China's Foreign Exchange Reserve

By the end of February 2006, China's foreign exchange reserve stood at 853.7 billion U.S. dollars, ranking first in the world, and the figure rised to a new record of 1.53 trillion by the end of 2007. At present, the issue of appropriate amount of China's foreign exchange reserve has become a focus in the academic world, but there is still no consistent point of view. In this context it is an important theoretical value and practical significance to explore the appropriate amount of China's foreign exchange reserve. This paper tries to establish a model of appropriate amount of China's foreign exchange reserve, and to put forward corresponsive policy recommendations.This paper is composed of the following five parts:Part one is the preface, introducing the background, literature summary, content and methods of research and possible innovation.Part two is the theory of appropriate amount of foreign exchange reserve, providing the definition of appropriate amount of foreign exchange reserve, reviewing and evaluating the theory and on the basis of this summing up the general factors affecting amount of foreign exchange reserve.Part three is the status quo and genetic analysis of China's foreign exchange reserve, analysing the status quo and causes and the resulting negative impact on China's economy.Part four is the model constructing and empirical analysis. On the basis of the above-mentioned this paper analyzes the factors that affect amount of China's foreign exchange reserve, and constructs an appropriate amount model. It proves that the present amount of China's foreign exchange reserve has far exceeded the appropriate amount, surplus existing. Subsequently this paper analyzes the factors affecting China's amount of foreign exchange reserve with modern econometric co-integration theory and dividedly tests granger causality between these factors and amount of foreign exchange reserve. The ultimate conclusion tells that two factors including GDP and foreign debt decide on amount of China's foreign exchange reserve in the long run.Part five is the countermeasure of accomplishing appropriate amount of China's foreign exchange reserve. This paper puts forward two categories of measures: the first one is to keep appropriate amount of foreign exchange reserve, the second one is to optimize foreign exchange reserve management.